Irregularities uncovered in one of the operations of Shawbrook will knock the profits of the challenger bank and force it to take an unexpected £9m bad debt charge.
The unscheduled trading statement stunned the market, sending shares in the group 26% lower when trading began, to 120p. Shawbrook shares had already been caught up in the market rout following the Brexit vote, losing 45% of their value in the previous two days.
Before the result of the EU referendum they were trading at 295p, and the shares floated at 290p a year ago.
The bank, which specialises in lending to small- and medium-sized businesses, said it uncovered the problem in one office of its asset finance division. .
The additional impairment charge of £9m will be taken in the second quarter of 2016 on £14.7m of loans. “The irregularities, which have now been rectified, were the result of a number of loans being underwritten in our asset finance business that did not meet the business’s strict lending criteria,” the bank said. A spokesman was not able to say if anyone had left as a result but said “appropriate management action” had been taken.
In October, the bank hired Steve Pateman from Santander as its chief executive. Pateman said: “While this is extremely disappointing, the irregularities were identified by the upgraded risk management systems and controls we implemented earlier this year. They have been investigated thoroughly and appropriate action has been taken.”
He added: “Whilst the additional impairment charge arising from these irregularities will impact pre-tax profit for the year, performance is otherwise in line with our expectations.”
But Gary Greenwood, analyst at Shore Capital, said: “Although management claims that this issue has now been addressed and that it is confident such an event cannot happen again, we have to admit that our confidence has been severely damaged by this news.”
In a separate announcement, Shawbrook said Tom Wood, its chief financial officer, was resigning after four years to spend more time with his family. Pateman said: “He leaves with our appreciation and best wishes for the future.”
Wood said: “After a hugely enjoyable four years with Shawbrook, and the immense privilege of leading the group for a period of time post the [flotation], I have decided that after a very intense couple of years I need to make more time for my family. I have seen little of them in the past two years.”
Greenwood said: “This means that the chairman, CEO and CFO will have all been replaced since the [flotation] last April.”
